This blog is an excerpt from my book, The Upside of Risk: Turning Complex Burdens into Strategic Advantages for Financial Institutions.
Every financial institution has a mission, vision, and values. But do they help shape strategic decisions?
They should. The mission, vision, and values of an institution aren’t a platitude or a public relations exercise. They are the guiding force behind strategy and strategic objectives.
Every board and management decision should align with or lead the institution one step closer to its mission and vision. Those decisions should also align with the institution’s values.
How does a financial institution know if its strategy will be effective?
Strategies are built on strategic objectives. These are the goals along the way to success. How do we know if a strategic objective will contribute to success? How do we measure success?
Risk management helps answer these questions. When a financial institution understands risk, it can decide what it needs to do to mitigate risk and move forward.
For example, an institution might consider a strategy of adopting faster or real-time payments.
This could be a smart move for Organization A.
Value: Innovation
Vision: Become a fintech leader
Mission: Provide customers with cutting-edge services.
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It may not make business sense for Organization B.
Value: Stability
Vision: Be the market leader for mortgage originations
Value: Efficiency
Why might this strategy not be the best fit for Organization B?
- Real-time payments are relatively new and evolving, so it may not be a great strategic fit for an organization that values stability among all else.
- It also might not make sense since Organization B is mainly focused on mortgage originations.
- Organization B needs to decide whether providing customers the efficiency of faster payments is worth the expenditure of resources that could raise overhead costs.
The same conversation is necessary if there’s an opportunity to open a bank branch or a loan production office in a distant location. If an institution’s mission, vision, and values all involve focusing extensively on the local community, it may not be a good strategy or use of resources to open a branch in a different state. For an institution with the desire for a diverse geographic footprint, it’s a much easier decision.
When mission and strategy don’t mesh
Before any decision can be made an institution needs to understand risk and how failing to align strategy and strategic objectives with mission, vision, and values introduces risk.
Imagine if Organization B decides to go ahead with the faster payments strategy even though it doesn’t appear to support its mission, vision, and values.
- The idea of faster payments is exciting and supports evolving customer expectations, but it will require resources. That means there will be fewer resources available to market, originate, close, and service mortgages while ensuring compliance.
- If a core update is necessary, the driving force behind that update may be faster payments instead of how it will support mortgages.
- Also, the newer technology is more likely to face hiccups than one that has been around for a decade, which could impact reliability.
- On the other hand, it may give the bank a competitive advantage if it can shave time off closing.
Is there a better strategy?
The only way to predict the results with any certainty is to fully assess these risks and opportunities to determine if the potential cost makes sense in light of Organization B’s mission, vision, and values. It needs to know how much potential risk exists and whether it aligns with the institution’s risk tolerance, or the maximum amount of risk an institution is willing to expose itself to.
Not only that, it must measure those results against other potential strategies to see if a strategy with less risk is more appropriate.
Every strategy has risk, but not every risk is worth taking. By aligning risk with strategic planning, a financial institution is not just ensuring that its strategic decisions align with its mission, vision, and values, it helps it meet strategic goals in the most intelligent and effective way possible.
Pivot! How to Build a Strategic Plan that Evolves With Your Financial Institution
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Pivot! How to Build a Strategic Plan that Evolves With Your Financial Institution
